This column contains corrections.
The latest amendment to the House Republicans’ bill to repeal the Affordable Care Act, or ACA, singles out people with pre-existing health conditions. The amendment to the American Health Care Act, or AHCA, would allow insurance companies in the individual market to discriminate against people with pre-existing conditions if they experience a gap in coverage.* People with severe health conditions would face premiums so high that they would be priced out of the market.
Amid accusations of breaking promises on pre-existing conditions, the Trump administration has suggested that states could create high-risk pools under the AHCA, a plan that itself has come under harsh criticism from groups such as the American Medical Association and AARP. Recent history shows that high-risk pools are not a solution to stabilizing insurance markets, particularly when underfunded.
Nobody has yet indicated how large the AHCA high-risk pool would be. There are currently about 31 million people insured through the small-group and individual markets, about half of whom likely have at least one pre-existing health condition. To examine the adequacy of the AHCA’s risk pool funding, the Center for American Progress assumes a small high-risk pool that covers the very sickest 5 percent of those markets. That would allow 1.5 million people, or 1 in every 10 enrollees with pre-existing conditions, to migrate from those markets to the high-risk pool.
We assume that a total of $130 billion goes to financing the risk pool over 10 years, including the entirety of the AHCA’s $100 billion Patient and State Stability Fund; the $15 billion federal invisible risk-sharing program; and the $15 billion of funding earmarked for maternity care, newborn care, mental health care, and substance use disorders. This equals an average of $13 billion that would be available annually for the high-risk pool. It is also a high-end estimate of the total funding that would be available for the risk pool, and means that no funding would be available for the stability fund’s other purposes, including public health efforts or reinsurance to bring down premiums for the broader health insurance market.
Records from the Pre-Existing Condition Insurance Plan, the program that provided coverage to high-cost enrollees until the exchanges became available, show that average annual claims costs were $32,108 in 2012. Given House Republicans’ claims that high-risk pools will adequately cover people with pre-existing conditions, we assume that those enrolled in them would continue to receive ACA-like benefits, including limits on out-of-pocket costs, no denials or higher rates based on health status, coverage of essential health services, and no annual or lifetime limits. After accounting for consumer cost sharing and health insurance companies’ administrative expenses,** we estimate that to sustain the AHCA risk pool, premiums would need to be $31,000 per year.***
For subsidies to cover 68 percent of enrollees’ premium costs, as ACA tax credits do now in the individual market exchanges, the government would have to put up $32.7 billion annually. And even after applying that subsidy, high-cost consumers would still owe $10,000 annually toward premiums.****
While the AHCA funds would defray those costs, they are insufficient to bring premiums down to affordable levels for consumers. The $13 billion per year that the AHCA provides for possible risk pool funding would leave a $20 billion shortfall annually. That gap is too big to be filled in by states, which would already be responsible for contributing to the stability fund. For example, we estimate that Maine would need $213 million each year to fund 10,000 high-risk enrollees, while the AHCA could provide only $84 million. Florida would receive a larger share of AHCA funds, about $1.9 billion per year, but would need to come up with the other $2.8 billion needed to prop up the pool.
The funding that the AHCA provides is inadequate to sustain even a small high-risk pool. But even if the House were to throw an additional $200 billion at high-risk pools to keep them afloat, that would do nothing to help consumers outside the risk pools. The other 9 in 10 people with pre-existing conditions would be vulnerable to thousands of dollars in health-based premium surcharges, and the return of medical underwriting would unravel the insurance market.
High-risk pools are expensive, and they have a history of being underfunded both before and after the ACA. Insufficient funding meant that patients seeking high-risk pool coverage encountered waiting lists, sky-high deductibles, and premiums double those of standard rates. Given the enormous funding shortfall looming for high-risk pools in the AHCA, there’s no reason to think this time would be different.
Emily Gee is a Health Economist at the Center for American Progress.
* Correction, May 3, 2017: This column has been corrected to clarify that the amendment waiver of community rating applies to the individual market.
** We assume that plans face overhead costs of 20 percent, consistent with medical loss ratio rules. Out-of-pocket costs are currently capped at $7,150 annually for individual coverage.
*** AARP estimated that high-risk pool premiums would be $25,700 annually in 2019, extrapolating from pre-ACA, state high-risk pool data. These pre-ACA programs, however, often included waiting periods, annual and lifetime limits, and other features that kept claims costs artificially low.
**** Correction, May 3, 2017: This column has been corrected to clarify that enrollees would owe $10,000 toward premiums for a fully funded high-risk pool.